Wall Street is betting that Friday at Jackson Hole, Powell will confirm that interest-rate cuts are coming soon. Markets are virtually certain that a rate cut is coming in September. The question isn’t “will they or won’t they cut?” The question is “how big will they cut? Many are expecting Powell to imply that tight monetary policy is no longer warranted. It could be a disappointment if Powell doesn’t reinforce that narrative. One thing is certain, everyone will be glued to Powell’s “tone.” Any hint of continued hawkishness may cause the market to react negatively.
Powell’s August 2022 Jackson Hole appearance may still be in investor’s minds. Stocks fell 3.4% that day and lost another 3.3% in the week following his remarks that the Fed would need to keep monetary policy restrictive to battle inflation. Recent retail sales data signaled spending remains strong, and that could cause the Fed to pursue a less aggressive policy seeking further evidence. Goldman trimmed the probability of a US recession in the next year to 20% from 25%, citing last week’s retail sales and jobless claims data.
